The Clock is Ticking For ECI Telecom

ECI Telecom (ECIL), a leading telecommunications equipment manufacturer, has until today to find another buyer with a better offer or else be acquired by the Swarth Group & Ashmore Management consortium, headed by Shaul Shani. Either the company is keeping its cards close to the vest, or no buyer has emerged. If an alternative buyer isn’t found then Swarth & Ashmore will purchase ECI at $10 per share.

When news of a potential alternative buyer surfaced the stock jumped a bit, but it sure seems that the market doesn’t believe it will succeed in finding another purchaser. That being said, getting sucked into the global sell-off of last week, ECI stock is trading in the $9.35 range, about $0.50 less than it was trading just two weeks ago. Either the market doesn’t believe the Swarth deal is going to go through either, or there is a nice trade that would yield over 6.5% net until the deal closes.

The company announced an extraordinary general meeting of shareholders for August 29, where, among other issues, a vote on the merger will take place. I haven’t heard any information to indicate the acquisition won’t be approved. In fact after speaking with some merger arbitrage hedge funds who see this opportunity, this seems like a “no brainer.”

I think that currently, the market is mis-pricing ECI, and if you are looking for an interesting bet until the end of the year, this is a good opportunity.

Disclosure: The author’s fund is long ECIL as of July 30, 2007.

ECIL 1-yr chart:

Comments

[Ralph F:]

Is 6.5% enough to compensate you for the downside risk that the deal falls through, now knowing there are no other buyers?

2007 Jul 31 06:40 AM